BARKERVILLE GOLD MINES LTD. CONSOLIDATED FINANCIAL STATEMENTS

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1 BARKERVILLE GOLD MINES LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE TEN MONTH PERIOD ENDED DECEMBER 31, 2016 AND THE 12 MONTHS ENDED FEBRUARY 29, 2016

2 Tel: Fax: BDO Canada LLP 600 Cathedral Place 925 West Georgia Street Vancouver BC V6C 3L2 Canada To the Shareholders of Barkerville Gold Mines Ltd., INDEPENDENT AUDITOR'S REPORT We have audited the accompanying consolidated financial statements of Barkerville Gold Mines Ltd., which comprise the consolidated statements of financial position as at December 31, 2016 and February 29, 2016 and the consolidated statements of loss and other comprehensive loss, changes in equity, and cash flows for the ten month period ended December 31, 2016 and the year ended February 29, 2016, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Barkerville Gold Mines Ltd as at December 31, 2016 and February 29, 2016 and its financial performance and its cash flows for the ten month period ended December 31, 2016 and year ended February 29, 2016 in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements, which indicates that the Company incurred a net loss of $43,947,658 during the period ended December 31, 2016 and, as at that date, had an accumulated deficit of $202,477,699. These conditions, along with other matters as set forth in Note 2, indicate the existence of a material uncertainty that may cast a significant doubt about the Company s ability to continue as a going concern. (signed) BDO CANADA LLP Chartered Professional Accountants Vancouver, British Columbia April 18, 2017 BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

3 Consolidated Statement of Financial Position As at, December 31, 2016 February 29, 2016 Assets Current Assets Cash and cash equivalents (Note 10) $ 19,224,750 $ 25,090,664 Available for sale investments (Note 11) 10,965,097 10,481,193 Amounts receivable (Note 6) 471, ,281 Prepaid expenses (Note 7) 446, ,903 Inventory 91,155 8,462 Total current assets 31,199,479 35,869,503 Reclamation deposits (Note 9) 3,395,800 3,395,800 Exploration and evaluation assets (Note 14) 5,663, ,178 Property, plant and equipment (Note 12) 8,144,977 7,356,293 Total assets $ 48,403,698 $ 46,759,774 Liabilities Current liabilities Trade and other payables (Note 16) $ 5,221,681 $ 2,207,913 Due to related parties (Note 20) 101, ,375 Lease payable (Note 32) 34,000 34,000 Provision for site reclamation and closure (Note 17) 4,756,697 5,653,617 Total current liabilities 10,113,752 8,005,905 Provision for site reclamation and closure (Note 17) 8,377,867 3,092,078 Lease payable (Note 32) 40,375 70,124 Flow through premium liability (Note 19) 5,230,000 66,000 Deferred tax liability (Note 34) 149, ,700 Total liabilities 23,911,294 11,419,807 Shareholders' equity Share capital (Note 19) Shares to be issued (Note 19) Share-based payments reserve (Note 19) Accumulated other comprehensive loss (Note 19) 193,651, ,976, ,500-33,088,879 28,940,017 (102,990) (46,780) Accumulated deficit (202,477,699) (158,530,041) Total shareholders' equity 24,492,404 35,339,967 Total liabilities and shareholders' equity $ 48,403,698 $ 46,759,774 The accompanying notes form an integral part of these consolidated financial statements. Approved on behalf of the board: "Chris Lodder" Chris Lodder, Chief Executive Officer "Sean Roosen" Sean Roosen, Chairman 3 P age

4 Consolidated Statement of Loss and Other Comprehensive Loss Ten months ended Year ended December 31, 2016 February 29, 2016 Revenue $ - $ 13,192,311 Cost of sales and direct costs (Note 8) - (4,934,669) Gross Profit - 8,257,642 Mine operating expense (Note 22) (921,458) (4,639,077) Mine operating income (loss) (921,458) 3,618,565 Expenses: Exploration (Note 23) 17,784,501 11,743,006 Evaluation (Note 24) 16,707,801 - Corporate administration (Note 25) 7,347,716 5,808,646 Impairment (Note 15) - 669,450 Finance (income) expense (Note 26) (450,805) 1,873,824 Change in fair value of derivative (Note 18) - 360,552 Gain on sale of NSR (Note 14) - (5,926,519) Loss on sale of Goldstream assets (Note 12) 1,681,808 - Gain on shares issued for settlement of gold loan facility (Note 18) - (798,069) Gain on revaluation of liability to issue options (Note 20) - (41,400) Sundry (income) expenses (8,421) (97,956) Gain (loss) on shares for debt (Note 19) - 104,057 Gain on shares issued for penalty interest on gold loan facility (Note 19) - (150,752) 43,062,600 13,544,839 Loss before income taxes (43,984,058) (9,926,274) Income tax recovery (Note 34) 36,400 1,866,300 Net loss for the year $ (43,947,658) $ (8,059,974) Other comprehensive loss Change in fair value of available for sale investment (56,210) (30,220) Total Comprehensive loss for the period $ (44,003,868) $ (8,090,194) Loss per common share, basic and diluted (Note 29) $ (0.15) $ (0.04) Weighted average number of common shares outstanding, (Note 29) 294,097, ,734,501 The accompanying notes form an integral part of these consolidated financial statements. 4 P age

5 Consolidated Statement of Changes in Equity Accumulated Share-based other Total Outstanding Shares to be payments comprehensive Accumulated Shareholders' Shares Share Capital Issued reserve loss deficit Equity Balance at March 1, ,634,706 $ 126,810,456 $ - $ 24,814,417 $ (16,560) $ (150,470,067) $ 1,138,246 Loss for the year (8,059,974) (8,059,974) Change in fair value of available for sale investment (30,220) - (30,220) Stock based compensation ,604, ,604,500 Issue of flow through shares pursuant to private placements 64,684,375 16,806,554-1,541, ,347,554 Exercise of options 100,000 46,900 - (19,900) ,000 Issue of shares for settlement of gold loan facility 77,900,939 21,003, ,003,103 Issue of shares for settlement of debt 1,222, , ,758 Balance at February 29, ,542,168 $ 164,976,771 $ - $ 28,940,017 $ (46,780) $ (158,530,041) $ 35,339,967 Balance at March 1, ,542,168 $ 164,976,771 $ - $ 28,940,017 $ (46,780) $ (158,530,041) $ 35,339,967 Loss for the period (43,947,658) (43,947,658) Change in fair value of available for sale investment (56,210) - (56,210) Stock based compensation ,714, ,714,562 Issue of flow through shares pursuant to private placements (Note 19) 42,772,000 21,183, , ,318,443 Shares issued on corporate acquisition (Note 30) 6,799,989 4,691, ,691,992 Issue of shares for acquisition of mineral property 894, , ,393 Exercise of options and warrants (Note 19) 4,362,000 2,264, ,500 (700,500) - - 1,896,915 Balance at December 31, ,370,394 $ 193,651,714 $ 332,500 $ 33,088,879 $ (102,990) $ (202,477,699) $ 24,492,404 The accompanying notes form an integral part of these consolidated financial statements. 5 P age

6 Consolidated Statement of Cash Flows Ten months ended Year ended December 31, 2016 February 29, 2016 Cash flows from (used in) operating activities Loss for the period/year $ (43,947,658) $ (8,059,974) Adjustments to reconcile loss to net cash used in operating activities Depreciation 656, ,951 Change in fair value of derivative component of gold loan facility - 360,552 Accretion expense - debt - 1,767,976 Accretion expense - provision for site reclamation and closure 126, ,848 Increase in estimate for site reclamation and closure 5,159,660 1,643,796 Impairment - 669,450 Gain on sale of NSR - (5,926,519) Gain on settlement of gold loan facility - (798,069) Stock based compensation 4,714,562 2,537,400 Loss on sale of Goldstream assets 1,681,808 - Recognition of liability to issue options - 69,000 Gain on revaluation of liability to issue options - (41,400) (Gain) loss on shares for debt - 104,057 Gain on shares issued for penalty interest on gold loan facility - (150,752) Deferred tax recovery (36,400) (1,866,300) Changes in non-cash working capital balances: Accounts receivable (655,753) 4,933,308 Prepaid expenses (310,570) 38,078 Trade and other payables 2,950,546 (5,660,473) Inventory (82,693) 3,561,325 Total cash inflows (outflows) from operating activities (29,743,702) (5,882,746) Cash flows from (used in) investing activities Proceeds from sale of NSR - 25,000,000 Purchase of available for sale investments, net of disposals (207,747) (10,508,653) Acquisition of property, plant and equipment, net of disposals (3,885,901) (815,630) Cash acquired on corporate acquisition 24,462 - Acquisition of mineral properties and deferred development costs - (1,939,147) Acquisition of exploration and evaluation assets (393,633) (240,445) Total cash (ouflows) from investing acitivites (4,462,819) 11,496,125 Cash flows from (used in) financing activities Amounts advanced by (paid to) related parties (9,001) (1,227,527) Finance lease (29,750) (35,700) Net issuance of share capital 28,379,358 20,263,554 Total cash (outflows) inflows from financing activities 28,340,607 19,000,327 Total increase (decrease) in cash and cash equivalents during the period (5,865,914) 24,613,706 Cash and cash equivalents at the beginning of the period 25,090, ,958 Cash and cash equivalents at the end of the period $ 19,224,750 $ 25,090,664 See Note 31 for a description of non-cash amounts not included in the consolidated statement of cash flows. The accompanying notes form an integral part of these consolidated financial statements. 6 P age

7 1. CORPORATE INFORMATION Barkerville Gold Mines Ltd. Barkerville Gold Mines Ltd. ( the Company ) was incorporated on February 12, 1970 under the laws of the Province of British Columbia and is engaged in the production and sale of gold, and the exploration, development, and acquisition of mineral properties in British Columbia. The Company is listed on the TSX Venture Exchange, under the symbol BGM-V. The address of the Company s corporate office and principal place of business is 11th floor 1111 Melville Street, Vancouver, British Columbia, Canada. 2. BASIS OF PREPARATION a) Going Concern of Operations These consolidated financial statements have been prepared in accordance with accounting principles applicable to a going concern and do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated statement of financial position classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material. At December 31, 2016, the Company had accumulated losses of $202,477,699 (February 29, 2016: $158,530,041). The Company had a loss of $43,947,658 during the ten month period ending December 31, 2016 (year ending February 29, 2016: loss of $8,059,974). These conditions raise material uncertainty that may cast significant doubt as to the ability of the Company to continue operating as a going concern. The Company requires additional financing to continue to be able to operate, retain rights to its properties and carry out exploration and development of its properties. Because of continuing operating losses, the Company's continuance as a going concern for the foreseeable future is dependent upon its ability to obtain adequate financing. It is not possible to predict whether financing efforts will be successful. The Company is in the process of exploring its properties and has not yet determined whether these properties contain economically recoverable reserves. The continued operations of the Company and the amounts recoverable on these properties are dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain the financing to complete the necessary exploration and development of such property and upon attaining future profitable production or proceeds from disposition of the properties. Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to unregistered prior agreements, unregistered claims, aboriginal claims and non-compliance with regulatory and environmental requirements. b) Statement of Compliance These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and Interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ) applicable to the preparation of these financial statements. The financial statements were authorized for issue by the Board of Directors on April 18, P age

8 2. BASIS OF PREPARATION (CONTINUED) c) Basis of presentation The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value, as explained in the accounting policies set out in Note 3. In addition, these financial statements have been prepared using the accrual basis of accounting except for cash flow information. The Company has changed its fiscal year end from February 29 to December 31. As such, the period ended December 31, 2016 is a stub year, comprised of the ten month period from March 1, 2016 to December 31, The comparative audited year ended February 29, 2016 comprises the March 1, 2015 to February 29, 2016 year. The consolidated financial statements are presented in Canadian dollars ( CDN ), which is also the Company s functional currency. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated. a) Basis of Consolidation The consolidated financial statements include Barkerville Gold Mines Ltd. and its subsidiaries as at December 31, Subsidiaries are entities controlled by the Company. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if, and only if, the Company has all of the following: Power over the investee (i.e., existing rights that give the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns The operations, assets and liabilities of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those of the Company. These consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries: Bethlehem Resources (1996) Corporation; Williams Creek Gold Ltd.; and BC Ltd. All intercompany transactions and balances are eliminated on consolidation. b) Cash and Cash Equivalents Cash and cash equivalents consists of cash on hand, demand deposits with financial institutions, and cash held in trust by legal counsel, and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value. For cash flow statement presentation purposes, cash and cash equivalents includes bank overdrafts. Cash and cash equivalents do not include restricted cash. 8 P age

9 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) c) Revenue Recognition Revenue from the sale of metals contained in concentrates is recognized when significant risks and rewards of ownership of the concentrates have been transferred to the customer in accordance with the agreements entered into between the Company and its customer, collection is reasonably assured and the price is reasonably determinable. Revenue from the sale of metals represents gross proceeds receivable from the customer. Revenue from metal sales is primarily from gold sales but also includes silver byproduct. Contract terms for the Company s sale of gold and silver in concentrate ( metal concentrate ) to third parties allow for price adjustment based on final assay results of the metal in concentrate by the customer to determine the final content. These are referred to as provisional pricing arrangements, and are such that the selling price for metal in concentrate is based on prevailing spot prices on a specified future date after shipment to the customer. Adjustments to the sales price arise due to movements in quoted market prices up to the date of final settlement. The period between provisional invoicing and final settlement generally takes less than 1 week. Sales contracts for metal in concentrate that have provisional pricing features are considered to contain an embedded derivative, which is required to be separated from the host contract for accounting purposes. The host contract is the sale of metals in concentrate and the embedded derivative is the forward contract for which the provisional sale is subsequently adjusted. Recognition of sales revenue for these commodities is based on the most recently determined estimate of metal in concentrate (based on initial assay results) and the spot price at the date of shipment. The embedded derivative, which does not qualify for hedge accounting, is initially recognized at fair value, with subsequent changes in the fair value recognized in profit or loss each period until final settlement, and presented as part of Other Income. Changes in fair value over the quotation period and up until final settlement are estimated by reference to forward market prices for gold and silver. Interest revenue is recognized as it is earned. d) Inventory Consumables are physically measured or estimated and valued at the lower of cost or net realizable value. Net realizable value is the estimated future sales price of the product the entity expects to realize when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted. Cost is calculated by the cost method, comprising the direct purchase cost of the items. Consumables are valued at the lower of cost or net realizable value. Any provision for obsolescence is determined by reference to specific items. A regular review is undertaken to determine the extent of any provision for obsolescence. e) Exploration and Evaluation Properties, Mineral Properties and Deferred Development Costs Pre-exploration Costs Pre-exploration costs are expensed in the period in which they are incurred. 9 P age

10 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e) Exploration and Evaluation Properties, Mineral Properties and Deferred Development Costs (continued) Exploration and Evaluation Expenditures Exploration expenditures are the costs incurred in the initial search for mineral deposits with economic potential or in the process of obtaining more information about existing mineral deposits. Exploration expenditures typically include costs associated with prospecting, sampling, mapping, drilling and other work involved in searching for minerals. Evaluation expenditures are the costs incurred to establish the technical and commercial viability of developing mineral deposits identified through exploration activities or by acquisition. Evaluation expenditures include the cost of: (i) establishing the volume and grade of deposits through drilling of core samples, trenching and sampling activities in an ore body that is classified as either a mineral resource or a proven and probable reserve; (ii) determining the optimal methods of extraction and metallurgical and treatment processes; (iii) studies related to surveying, transportation, and infrastructure requirements; (iv) permitting activities; and (v) economic evaluations to determine whether development of the mineralized material is commercially justified, including scoping, prefeasibility and final feasibility studies. License costs paid in connection with a right to explore in an existing exploration area are expensed as incurred. Once the legal right to explore has been acquired, exploration and evaluation expenditure is charged to profit or loss as incurred, unless it is concluded that a future economic benefit is more likely than not to be realized. In evaluating if expenditures meet the criteria to be capitalized, several different sources of information are utilized. The information that is used to determine the probability of future benefits depends on the extent of exploration and evaluation that has been performed. Exploration and evaluation expenditures incurred on a license where a NI Standards of Disclosure for Mineral Projects ( ) compliant resource has not yet been established are expensed as incurred until sufficient evaluation has occurred in order to establish a compliant resource and on completion of a pre-feasibility study. Costs expensed during this phase are included in exploration expenses in the statement of loss and other comprehensive loss. Costs of acquiring exploration and evaluation assets are capitalized. They are subsequently measured at cost less accumulated impairment. Once development is sanctioned, exploration and evaluation assets are tested for impairment and transferred from Exploration and Evaluation Assets to Mineral Properties and Deferred Development Costs or Property, Plant & Equipment depending on the nature of the asset. No amortization is charged during the exploration and evaluation phase. Mineral Properties and Deferred Development Costs Subsequent to completion of a positive economic analysis on a mineral property, capitalized exploration and evaluation assets are transferred into mineral properties, as an intangible asset, or as an item of property, plant and equipment based on the nature of the underlying asset. Items of intangible assets and property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets (where relevant) borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Following transfer of Exploration and Evaluation Assets into Mineral Properties within Mineral Properties and Deferred Development Costs, all subsequent expenditure on the construction, installation or completion of infrastructure and mine facilities is capitalized within Deferred Development Costs. Development expenditure is net of proceeds from the incidental sale of ore extracted during the development phase. 10 P age

11 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e) Exploration and Evaluation Properties, Mineral Properties and Deferred Development Costs (Continued) Mineral Properties and Deferred Development Costs (Continued) It is also necessary to incur costs to remove overburden and other mine waste materials (stripping costs) in order to access the ore body. During the development of a mine, stripping costs are capitalized to deferred development costs for the related mineral property. When a mine construction project (included in deferred development costs) moves into the production stage, the capitalization of certain mine construction costs ceases and are either regarded as part of the cost of inventory or expenses, except for costs which qualify for capitalization relating to mining asset additions or improvements, underground/surface mine development or mineable reserve development. During the productive phase of a mine, stripping costs are accounted for as variable production costs and included in the cost of inventory produced during the period except for stripping costs incurred to provide access to sources of reserves that will be produced in future periods and would not have otherwise been accessible, which are capitalized as development costs. Management reviews the carrying value of capitalized mineral property and development costs for indicators of impairment. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all costs associated with the project are impaired to the project s recoverable amount. Amortization and Depletion Accumulated mine development costs are amortized/depleted on a unit of production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life are shorter than the life of the mine, in which case the straight line method is applied. The unit of account for run-of-mine (ROM) costs is tonnes of ore extracted and processed. Rights and concessions are depleted on the unit of production basis over total reserves of the relevant area. The unit of production rate for the amortization/depletion takes into consideration expenditures to date, and future sanctioned expenditures. Amortization and depletion are either regarded as part of the cost of inventory or expensed through the statement of loss and other comprehensive loss. Disposal Gains and losses on disposal of an item within Exploration and Evaluation Properties, or Mineral Properties and Deferred Development Costs are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in profit or loss. Sale of Royalty Interest The Company does not recognize any gain or loss on its exploration and evaluation royalty transactions, until the consideration received is in excess of the carrying amount. f) Property, Plant and Equipment Cost Items of property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation, and for qualifying assets (where relevant) borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The cost of replacing or overhauling a component of plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefit embodied within the component will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced component is written off. Costs associated with routine repairs and maintenance of plant and equipment are expensed as incurred. 11 P age

12 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) f) Property, Plant and Equipment (continued) Depreciation The carrying amounts of property, plant and equipment are depreciated using the diminishing balance method using the rates below. When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (or components) of plant and equipment. Mining Plant & Equipment: 5%-50% Office Furniture & Equipment: 20% Depreciation methods and useful lives are reviewed at each annual reporting date and adjusted as appropriate. Depreciation is either regarded as part of the cost of inventory or expensed through the statement of loss and other comprehensive loss. Disposal Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in profit or loss. g) Reclamation Deposits Reclamation deposits are term deposits held on behalf of the Government of the Province of British Columbia (the province ) as collateral for possible reclamation activities on the Company s mineral properties in connection with permits required for exploration activities. As they are restricted from general use, they are excluded from current assets. Reclamation deposits are released, by the province, once the property is restored to satisfactory condition. Reclamation deposits are classified as loans and receivables. h) Impairment of Non-Financial Assets The Company assesses at each reporting date whether there is an indication that an asset (or cash-generating unit (CGU) may be impaired. If any indication of impairment exists, the Company estimates the asset s or CGU s recoverable amount. Recoverable amount is the higher of an asset s or CGU s fair value less costs to sell and its value in use and is determined for an individual asset unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the asset is tested as part of a larger CGU. Where the carrying value of an asset or CGU exceeds its recoverable amount, the asset/cgu is considered impaired and is written down to its recoverable amount. In calculating value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset/cgu. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other fair value indicators. The Company bases its impairment calculation on detailed budgets and forecasts, which are prepared separately for each of the Company s CGUs to which the individual assets are allocated. Impairment losses of continuing operations, including impairment of inventories, are recognized in loss and other comprehensive loss in those expense categories consistent with the function of the impaired asset. An assessment is made each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset s or CGU s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the recoverable amount since the last impairment loss was recognized. The reversal is limited to the recoverable amount, which cannot exceed the carrying amount that would have been determined, net of depreciation/amortization, had no impairment loss been recognized for the asset/cgu in prior years. Such a reversal is recognized in loss and other comprehensive loss. Exploration and Evaluation assets are considered for impairment in light of the requirements of IFRS 6, and allocated to a separate CGU. 12 P age

13 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) Financial Instruments Initial recognition and measurement Financial assets in the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are recognized initially at fair value plus directly attributable transaction costs, except in the case of financial assets recorded at fair value through profit or loss which do not include transaction costs. Purchases or sales of financial assets that require delivery of assets in a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, which is the date that the Company commits to purchase or sell the asset. The Company s financial assets include cash, reclamation deposits, amounts receivable, and available for sale investments. Subsequent measurement The subsequent measurement of financial assets depends on their classification, described below. Financial Assets Financial assets are classified into one of the following categories based on the purpose for which the asset was acquired. The Company's accounting policy for each category is as follows: Financial Assets at Fair Value Through Profit or Loss Financial assets at fair value through profit or loss (FVPTL) are carried in the statement of financial position at their fair value at each period end with net changes in fair value presented as a finance expense in profit and loss. Cash is classified as FVPTL. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. Reassessment occurs only if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or there is a reclassification of a financial asset out of the fair value through profit or loss category. Loans and Receivables These assets are non-derivative financial assets resulting from the delivery of cash or other assets by a lender to a borrower in return for a promise to repay on a specified date or dates, or on demand. Loans and receivables are comprised of amounts receivable and reclamation deposits. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue and subsequently carried at amortized cost, using the effective interest rate method, less any impairment losses. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process. Impairment of Financial Assets At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets. 13 P age

14 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) Financial Instruments (Continued) Available-For-Sale Investments Non-derivative financial assets not included in the above category are classified as available-for-sale and comprise principally of the Company's strategic investments in entities not qualifying as subsidiaries or associates, and short term corporate bonds. Available-for-sale investments are carried at fair value with changes in fair value recognized in accumulated other comprehensive loss/income. Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognized in other comprehensive loss/income, is recognized in profit or loss. If there is no quoted market price in an active market and fair value cannot be reliably determined, available-for-sale investments are carried at cost. Purchases and sales of available-for-sale financial assets are recognized on a trade date basis. On sale or impairment, the cumulative amount recognized in other comprehensive loss/income is reclassified from accumulated other comprehensive loss/income to profit or loss. Financial Liabilities Initial recognition and measurement Financial liabilities in the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs. The Company s financial liabilities include trade and other payables, due to related parties, loans and borrowings, gold loan facility and derivative financial instruments. Subsequent measurement Financial liabilities classified as other financial liabilities, based on the purpose for which the liability was incurred, are comprised of trade and other payables, due to related parties, loan from director and non-derivative components of the gold loan facility. These liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method. This ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Financial liabilities are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm s-length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note P age

15 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Embedded derivatives Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, and the risks and characteristics are not closely related to those of the host contracts. The Company may enter into derivative financial instruments to obtain loan financing. These instruments are nonhedge derivative instruments and are accounted for at fair value through profit or loss ( FVTPL ). j) Provisions General Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursements. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as finance cost in loss and other comprehensive loss. Provision for site reclamation and closure The Company records the present value of estimated costs of legal and constructive obligations required to restore mining and other operations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas. The obligation generally arises when the asset is installed or the ground/environment is disturbed at the mining production location. When the liability is initially recognized, the present value of the estimated costs is capitalized by increasing the carrying amount of the related mining assets to the extent that it was incurred by the development/construction of the mine. Any rehabilitation obligations that arise through the production of inventory are expensed as incurred. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability, and is included as a finance expense. The periodic unwinding of the discount is recognized in profit or loss as a finance cost. Additional disturbances or changes in rehabilitation costs are recognized as additions or charges to the corresponding assets and rehabilitation liability when they occur. Costs related to restoration of site damage (subsequent to start of commercial production) which is created on an ongoing basis during production are provided for at their net present values and recognized in profit or loss as extraction progresses. Any reduction in the rehabilitation liability and, therefore, any deduction from the asset to which it relates, may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to profit or loss. If the change in estimate results in an increase in the rehabilitation liability and, therefore, an addition to the carrying value of the asset, the Company considers whether this is an indication of impairment of the asset as a whole, and if so, tests for impairment in accordance with IAS 36. If, for mature mines, the revised mine asset net of rehabilitation provisions exceeds the recoverable value, that portion of the increase is charged directly to expense. For closed sites, changes to estimated costs are recognized immediately in loss and other comprehensive loss. 15 P age

16 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) k) Contingencies Due to the size, complexity and nature of the Company s operations, various legal and tax matters are outstanding from time to time. In the event that management s estimate of the future resolution of these matters changes, the Company will recognize the effects of the changes in the consolidated financial statements on the date such changes occur. l) Government Grants From time to time the Company receives government incentive programs such as investment tax credits. Government incentives are accrued when there is reasonable assurance of realization and reflected as a reduction of the related asset or expense. m) Income Taxes Income tax expense comprises current and deferred tax expense. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive loss/income. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date. n) Deferred Tax Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss. o) Share Capital Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company s common shares, share warrants, and flow-through shares are classified as equity instruments. When the Company issues units as part of a private placement, consisting of both common shares and common share purchase warrants, the fair value of the warrants is determined using the Black-Scholes pricing model, and the remaining value is assigned to the common shares. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the flow through share proceeds. Earnings (loss) Per Share Basic earnings (loss) per share is computed by dividing the net income or loss applicable to common shares of the Company by the weighted average number of common shares outstanding for the relevant period. Diluted earnings (loss) per common share is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding on a diluted basis. The weighted average number of shares outstanding on a diluted basis takes into account the additional shares for the assumed exercise of stock options and warrants and debt conversion, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercise were used to acquire common stock at the average market price during the reporting period. In a loss period, stock options and warrants are anti-dilutive. 16 P age

17 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) o) Share Capital (continued) Share-based Payments Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period. Where equity instruments are granted to persons other than employees, profit or loss is charged with the fair value of goods and services received. Where the fair value of the goods or services is not determinable, the fair value of the equity instruments granted is used. When options are exercised, the proceeds received, together with any related amount in share-based payments reserve, are credited to share capital. p) Fair value measurement The Company measures financial instruments, such as derivatives, at fair value at each reporting date. Also, from time to time, the fair values of non-financial assets and liabilities are required to be determined, e.g. when the entity acquires a business, or when an entity measures the recoverable amount of an asset or cash-generating unit (CGU) at fair value less costs of disposal. Also, fair values of financial instruments measured at amortized cost are disclosed in Note 21. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. 17 P age